Australia: Employment Update "Unfair Dismissal Claims Limited Following A Sale Of Business"

Last Updated: 18 September 2008
Article by Peter Punch and Mick Sheils

The former Federal Government's "WorkChoices" legislation made it much harder for sacked employees to bring unfair dismissals, and so far the Rudd Labor Government has not changed these limits on claims. Additionally, a recent decision of the Australian industrial Relations Commission demonstrates that "transmission of business" situations (eg sale and purchase of business) can also prevent such claims.

"Qualifying Period" for Unfair Dismissal Claim

Section 643(6) of the Workplace Relations Act 1996 ("the Act") specifies that an application for unfair dismissal cannot be made by an employee unless that employee has completed a qualifying period of employment with the employer.

The Act specifies that the qualifying period of employment is:

(a) 6 months; or

(b) a shorter period, or no period, determined by written agreement between the employee and the employer before the commencement of employment; or

(c) a longer period determined by written agreement between the employee and the employer before the commencement of the employment, being a reasonable period having regard to the nature and circumstances of the employment.

In transmission of business transactions the Act provides for continuation of existing award/agreement coverage to the transferred employees for a maximum period of 12 months following the transmission. However the Act is silent as to the application of the qualifying period of service to employees subject to a transmission of business. This question has now been decided in Aged Care Services Australian Group Pty Limited ats Ziday & Others (decision of the Australian Industrial Relations Commission of 27 May 2008).

Relevant Facts

The employees the subject of the decision were advised that the business that they were working in had been sold and that their employment would be transferred to the new owner. One of the affected staff had attended a meeting at which representatives of the old and the new employer attended. Staff were assured by both the old employer and the new employer that under the new ownership everything was going to remain the same, their service was to be recognised and that nothing, including their entitlements, would change. The employees subsequently received a letter confirming these representations.

Upon transmission of the business to the new owner the employees continued to work their normal shifts until their employment was terminated by letter some 3 months after commencing employment with the new owner. The employees brought unfair dismissal claims.

The Commissioner hearing the case decided that the dismissed employees could bring claims, but a Full Bench of the Commission overruled that decision by majority, ruling that the employees were not able to bring unfair dismissal claims.

The majority noted that none of the employees had completed 6 months service with the new employer. Further there was no written agreement in evidence before the Commission that the qualifying period would be waived for any of the transferred employees.

The majority also stated that while the new employer "undertook in writing to recognise each of the employees' prior service for the purposes of calculating their employment entitlements in the future, we do not believe that constitutes an agreement under s.643(7) of the Act that there be no qualifying period of employment with ACSAG [the new employer] for the purposes of s.643(6) of the Act". It was also decided by the majority that:-

"Notwithstanding the fact that each of the employees gave considered written evidence ... none of the employees gave evidence that they understood or believed from ACSAG's undertakings or otherwise that there was to be no qualifying period of employment with ACSAG before they could make a s.643(1) application against ACSAG on the ground in s.643(1)(a) or on grounds that include that ground.

In our view, novation or assignment of the contract of employment or recognition of prior service or continuity of employment, in themselves, are not sufficient to overcome or meet the statutory requirements in ss.643(6) and (7) of the Act."

We believe that this decision is a correct application of the legislation. But, to require long serving employees to serve a qualifying period of 6 months (denying them unfair dismissal rights for that period) when their employment has been transferred to a new owner as a consequence of the sale of the business in which they have loyally served is in our view harsh. It remains to be seen whether the Labor Government will remove this requirement when it finalises its new unfair dismissal laws.

The Lesson for Now ...

So, in transmission of business transactions (and this includes incorporation of not for profit organisations), if a written agreement is not made between the new employer and the transferring employees to waive the qualifying period then such employees will be required to serve a qualifying period of 6 months before being eligible to lodge an unfair dismissal application. Of course, any such an employee would also need to overcome the many other hurdles to a claim such as termination for genuine operational reasons and the requirement of being an employee of an employer with in excess of 100 employees before being eligible to bring an application. If you need advice and assistance in an unfair dismissal application please do not hesitate to contact our Peter Punch or Mick Sheils or any of our team members of the Employment and Industrial Relations Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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